Understanding The Correlation Between Gold And Bitcoin
The correlation between gold and Bitcoin continues to evolve and, for that reason, can be difficult to track. The relationship between the two can also be easily confused since Bitcoin is consistently referred to as “digital gold” and has been since its creation. In this post, we’ll be covering the real similarities and differences between gold and Bitcoin so you can have a firmer grasp on their complex relationship and their frequent comparison.
Why Bitcoin Is Called “Digital Gold”
Backers of Bitcoin have referred to this cryptocurrency as digital gold for years. Precious metals, such as gold and silver, have historically been used not only as units of exchange but as stores of value, which are assets that retain their value without the risk of depreciation. The “digital gold” moniker gained traction from backers who consider Bitcoin a reliable and scarce store of value, like gold. The term didn’t reach such widespread popularity until it appeared in a New York Times article in 2015, but has been part of Bitcoin’s main narrative since its founding.
What Is The Correlation Between Gold And Bitcoin?
Like any two things that are commonly compared, there are important similarities and differences between gold and Bitcoin. What makes these two comparable and what sets them apart from one another? We’ll review the basics of this relationship below:
Correlation Between Gold And Bitcoin
Scarcity: Both gold and Bitcoin are able to maintain their value through the scarcity of their supply. Though gold follows neither a traditionally inflationary or deflationary value model, Bitcoin’s built-in scarcity measures (such as its 21 million unit cap and halving events) are what lead to the most common comparisons between gold and Bitcoin.
Correlations in price: Recent data has shown generally positive (if not major) correlations between gold and Bitcoin prices over the past 7 years. Both are regarded by their more passionate backers as safe-haven assets against the fluxes and flows of the traditional stock market. Though the Covid-19 pandemic caused a brief dip in Bitcoin’s dollar value, it was able to rebound from this with relative ease, revamping the debate about the comparisons of stability between gold and Bitcoin.
Alternative forms of investment: As alternative investments (assets that defy traditional investment classification), gold and Bitcoin both have high minimum investments and are not required to be registered with the Securities and Exchange Commission (SEC). Alternative forms of investment such as gold and Bitcoin are generally believed to be more safe against traditional market changes, though it should be noted that the SEC and other federal agencies are involved in the regulation and monitoring of various forms of gold investments, including Gold ETFs.
Differences Between Gold And Bitcoin
Volatility: Though gold has experienced fluctuations in value over its centuries-long history as both currency and store of value, Bitcoin’s ten year history has demonstrated more intense spikes of appreciation and devaluation than gold. Proponents of the cryptocurrency defend Bitcoin against claims of instability by reminding critics that a decade is too short of a time period to determine Bitcoin’s future instability, noting that wider-spread usage and ownership of Bitcoin in coming years will help cement itself as a more stabilized, dependable currency.
Supply changes: While Bitcoin was designed to max out at 21 million units, gold is a natural, nonrenewable resource. Many cryptoexperts have also noted that Bitcoin’s supply doesn’t necessarily need to cap at 21 million—in the event that Bitcoin’s eventual zeroing became a problem or was no longer wanted by miners and backers alike, its code could be reconfigured to create more units, though this would be a difficult and likely controversial process. The same potential supply flexibility can’t be said for gold, though the diversity of gold’s physical forms as an asset make the most of its naturally limited supply.
Portability And Access: As a digital currency, a main element of Bitcoin’s appeal is the possibility of its global reach and accessibility. With more and more interest in cryptocurrencies entering into mainstream financial conversations, Bitcoin and other cryptocurrencies have the potential for widespread global usage without the necessity of a centralized bank in every area it can be used. Instead, cryptocurrency ATMs can provide users with access to their crypto-assets wherever they go.
Ease of liquidation: Related to Bitcoin’s accessibility in comparison to gold’s, the entirely digital nature of Bitcoin makes it much easier to sell, in general. Gold is more limited in its non-physical exchange options, which makes it harder for holders to liquidate their gold access in comparison to Bitcoin. This is another selling point on the term “digital gold” for Bitcoin enthusiasts — it has the assumed stability of gold’s value and its potential for global recognition, but is more easily accessible and sellable.
Is Bitcoin Really The “New Gold?”
In some ways, Bitcoin shares similar components of gold’s historic usage, global recognition and value structures. It’s relative newness (especially when compared to the extensive history of gold) may soften some of the more extreme comparisons made between gold and Bitcoin, such as claims that Bitcoin is soon to surpass gold in transnational markets and usability. However, it isn’t too bold to claim that the more general comparisons between gold and Bitcoin are accurate and are a helpful means of coming to understand the basics of this cryptocurrency’s function and valuation.
Realistically, gold and Bitcoin correlate in important ways, but their differences still ought to be an important factor to consider when many undue comparisons are drawn between. Both of these alternative investment forms have benefits and drawbacks that must be realistically considered before making any choices about your assets and financial future.
Accessing Your Bitcoin Through Pelicoin ATMs
Pelicoin is the Gulf South’s largest and most secure cryptocurrency ATM service. We’re dedicated to giving you direct and safe access to your Bitcoin, Litecoin, and Ethereum assets. Visit our blog or talk to us today by emailing support@pelicoin.com or calling 855-PELICOIN. We hope to hear from you soon!